SKAGEN Kon-Tiki Statusrapport april 2016

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1 SKAGEN Kon-Tiki Statusrapport april 216

2 Hovedtrekk april 216 SKAGEN Kon-Tiki* falt,8 prosent i april, mens referanseindeksen var ned 2,2 prosent. Hittil i år er fondet ned 4,3 prosent, noe som er ett prosentpoeng mer enn MSCI sin vekstmarkedsindeks. Vekstmarkedene var litt svakere enn de utviklede markedene i april en pause som kom etter et sterkt første kvartal. Så langt i år er vekstmarkedene ned 3,3 prosent mens de utviklede markedene er ned 8,4 prosent. Russland, Brasil og Tyrkia var blant de sterkeste vekstmarkedene i april, noe som er en fortsettelse av første kvartal. De tre beste bidragsyterne i april var Mahindra & Mahindra, Tullow Oil og CNH Industrial. Mahindra rapporterte sterke salgstall, mens Tullow hang seg på oljeprisen oppover og serverte en positiv melding til markedet ved utgangen av måneden. CNH Industrial, som produserer jordbruks- og anleggs-maskiner, er på vei tilbake fra svake nivåer, noe som også viste seg i tallene fra første kvartal. Disse ble publisert i begynnelsen av mai. Hyundai, Samsung Electronics og X5 var de tre største negative bidragsyterne i april. Hyundai rapporterte svake tall for første kvartal. Samsung sine tall var på sin side sterke. Det var også tallene til X5, som ble urettmessig trukket ned av svake tall fra en av konkurrentene til selskapet. Vi kjøpte oss ikke inn i noen nye posisjoner i løpet av måneden, men har laget plass til nye poster gjennom å trimme ned aksjebeholdningen i noen eksisterende investeringer. Vi solgte oss ut av DRD Gold etter en fantastisk oppgang i 216, hvor aksjen har gått 3x siden starten på året. Vekstmarkedene fortsatte å handle til rabatt mot utviklede markeder, og har nå en 216e P/E på 12,3x og P/B på 1,4x, sammenlignet med 16,5x og 2,1x for de utviklede markedene. De 12 største postene utgjør nå mer enn 49 prosent av fondet (opp fra 45 prosent ved inngangen til 215). I samme periode har vi redusert antallet poster i porteføljen fra 95 til 63. Porteføljen er attraktivt priset med 216e P/E på 8,6x og P/B på 1,x. Vi ser nå en oppside på 46 prosent over en 2-års horisont. 2 * Med mindre annet er oppgitt er alle avkastningstallene for fondet i denne rapporten knyttet til klasse A, og er etter fradrag for gebyrer.

3 A Avkastning, april 216 A April QTD YTD 1 år 3 år 5 år 1 år Siden start* SKAGEN Kon Tiki A -,8% -,8% -4,3% -1,5% 5,9% 3,% 6,6% 14,3% MSCI EM Index -2,2% -2,2% -3,3% -12,1% 6,8% 4,% 5,1% 8,3% Relativ avkastning 1,4% 1,4% -1,% 1,6% -1,% -1,% 1,5% 6,% Note: Alle avkastningstall utover 12 måneder er annualisert (geometrisk avkastning) * Startdato: 5. april 22 3

4 SKAGEN Kon-Tiki har slått indeks i 11 av 14 år (%) 13 SKAGEN Kon-Tiki A* (NOK) MSCI EM Index (NOK) Hittil i 216 Note: Alle tall i NOK, etter gebyrer * Startdato: 5. april 22 4

5 Utvikling i vekstmarkedene i april 216 (i NOK) RUSSLAND BRASIL TYRKIA SØR AFRIKA UNGARN CHILE SKAGEN Kon-Tiki A KINA TSJEKKIA INDIA MSCI EM THAILAND KOREA INDONESIA MEXICO MALAYSIA TAIWAN POLEN

6 Utvikling i vekstmarkedene hittil i 216 (i NOK) BRASIL 25 TYRKIA RUSSLAND UNGARN 1 SØR-AFRIKA 8 THAILAND 6 MALAYSIA INDONESIA 1 MEXICO TSJEKKIA MSCI EM SKAGEN Kon-Tiki A POLEN KOREA TAIWAN -6 INDIA -11 KINA -13 6

7 Viktigste bidragsytere i april 216 Største positive bidragsytere Største negative bidragsytere Company NOK Millions Company NOK Millions Mahindra & Mahindra Ltd 117 1E+8Hyundai Motor Co -232 Tullow Oil PLC 93 9E+7Samsung Electronics Co Ltd -221 CNH Industrial NV 66 7E+7X5 Retail Group NV -8 UPL Ltd 6 6E+7State Bank of India -73 Yazicilar Holding AS 6 6E+7LG Chem Ltd -67 ABB Ltd 58 6E+7LG Electronics Inc -52 Samsung SDI Co Ltd 56 6E+7Great Wall Motor Co Ltd -49 Cosan Ltd 51 5E+7Richter Gedeon Nyrt -43 JSE Ltd 5 5E+7Korean Reinsurance Co -37 Haci Omer Sabanci Holding AS 49 5E+7Naspers Ltd -37 Total verdiskapning i april: -159 Note: Bidrag til absoluttavkastning 7

8 Viktigste bidragsytere hittil i 216 Største positive bidragsytere Største negative bidragsytere Company NOK Millions Company NOK Millions Haci Omer Sabanci Holding AS 248 # State Bank of India -394 Banrisul 21 # Frontline Ltd -377 Cosan Ltd 184 # Great Wall Motor Co Ltd -331 OCI Co Ltd 141 # Samsung Electronics Co Ltd -327 JSE Ltd 127 # Hyundai Motor Co -313 Tullow Oil PLC 11 # LG Chem Ltd -121 Cia Brasileira de Distribuicao 11 # Investment AB Kinnevik -117 Indosat Tbk PT 94 # Lenovo Group Ltd -112 UPL Ltd 76 # Mahindra & Mahindra Ltd -11 DRDGOLD Ltd 68 # Tech Mahindra Ltd -94 Total verdiskapning hittil i 216: Note: Bidrag til absoluttavkastning 8

9 Kjøp og salg, mars 216 Kjøp Salg DRD Gold (Ut) Solgt ut på styrke (opp mer enn 2% i 216). Asia Cement Norwegian Air Shuttle DRB Hicom EFG Hermes JSE Bharti Indosat Trimmet posisjoner for å frigjøre kapital til andre ideer både eksisterende og potensielle nye investeringer. 9

10 Viktigste endringer i 1. kvartal 216 Økte poster Reduserte poster Q1 Toray Industries Inc (Ny) Q1 Bidvest Group Ltd Pivovarna Lasko Aveng Ltd Archer Ltd Hyundai Motor Co Bharti Airtel Ltd Samsung Electronics Co Ltd Indosat Tbk PT ABB Ltd (Ut) (Ut) (Ut) (Ut) Q2 Q2 DRDGOLD Ltd Samsung Electronics Co Ltd Indosat Tbk PT Bharti Airtel Ltd 1

11 Største poster i SKAGEN Kon-Tiki, april 216 Holding Price P/E P/E P/BV Div. yield Price Upside size, % 215e 216e last 15e (%) target % Samsung Electronics Hyundai Motor Mahindra & Mahindra Sabanci Holding Richter Gedeon State Bank of India ABB Naspers Bharti Airtel X5 Retail Group Cosan Ltd UPL Weighted top Weighted top Emerging market index Top price target

12 Dec-5 Apr-6 Aug-6 Dec-6 Apr-7 Aug-7 Dec-7 Apr-8 Aug-8 Dec-8 Apr-9 Aug-9 Dec-9 Apr-1 Aug-1 Dec-1 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 P/BV for SKAGEN Kon-Tiki versus vekstmarkedene 3,5 3, P/B Kon-Tiki P/B EM Index 2,5 2, 1,5 1,,5 Per 3. april

13 Dec-5 Apr-6 Aug-6 Dec-6 Apr-7 Aug-7 Dec-7 Apr-8 Aug-8 Dec-8 Apr-9 Aug-9 Dec-9 Apr-1 Aug-1 Dec-1 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 P/E SKAGEN Kon-Tiki versus vekstmarkedene 2 18 P/E FY1 Kon-Tiki P/E FY1 EM Index Per 3. april

14 Aggregate weight in portfolio (%) Number of holdings SKAGEN Kon-Tiki - porteføljekonsentrasjon 1% 12 9% 8% 1 7% 6% 8 5% 6 4% 3% 4 2% 1% 2 % Number of companies Top 12 weighted positions Top 35 weighted positions Kilde: SKAGEN AS ved utgangen av april

15 Sektor og geografisk fordeling mot indeks (%) Sektorfordeling Geografisk fordeling Energy Raw materials Industrials Consumer discretionary Consumer staples Health Banking & Finance IT Telecom Utilities Cash Fund Index Asia DM Asia EM Europe DM ex. The Nordics Europe EM Frontier Markets Latin America Middle East & Africa North America The Nordics Cash

16 Nyheter og annet om porteføljeselskaper - på engelsk

17 Key earnings releases and corporate news, April 216 Samsung Electronics (7.4% weight): A solid 1Q16 report Implications for Investment Case: Positive. Management now says In the second quarter we expect our solid performance to continue. We believe 2Q16 operating profit should be close to 1Q16. With consensus EPS estimate still implying a c1% decline for 216, we expect positive revisions in the near term. We also believe the 1Q16 result should reduce two major concerns; 1) sharp decline in DRAM profits and 2) return to sub-1% margin in handset business. Event summary: Final operating profit for 1Q16 of KRW 6.68tr was at the high end of preliminary range and +12% YoY and +9%. This includes a KRW c25bn non-recurring impact from retrospective cuts in royalty payments to Nokia. Benefit from FX was KRW c4bn versus 4Q15, helping mainly semi and display earnings. Adjusted for this, underlying result was flat QoQ in a seasonally weaker quarter. Annualised RoE was 12%, dragged down by its growing low yielding cash pile. IM division: Sharply improving operating profit of KRW 3.9tr up from 2.23tr in 4Q16 and 2.74tr in 1Q15. The key driver is strong sales of the new Galaxy S7 flagship (2x initial sale of S6), where the Edge has sold especially well. Semiconductors: operating profit of KRW 2.63bn on sales of KRW 11.15tr declining 16% QoQ albeit on a higher operating margin of 23.6%, up from 21.2% in 4Q15. This is quite impressive given the fact that standard DRAM prices (c8% of division profit) declined c14% QoQ. And demonstrates the increasing cost leadership of Samsung and widening technology gap to peers. Consumer Electronics: Profit of KRW 51bn is significantly up from a loss in 1Q15 but down from a seasonally strong 4Q15 of KRW 82bn. Profit is helped by lower panel prices. Management expects 2Q16 profit to improve QoQ based on higher TV shipment (helped by Olympics), better mix (more SUHD) and seasonally strong contribution from air conditioning and refrigerators. The only weak spot was Display which recorded an operating loss of KRW 27bn versus 3bn profit in 4Q15. Seasonally lower volume in LCD panels and further price decline amid weaker industry utilisation contributed. Management expects a return to profit from 2Q16 driven by higher LCD volumes. The company has now finalised the second tranche of its extraordinary buy-back program, acquiring a total of 5m shares (3% of issued shares) of which 35% preference shares, for total proceeds of KRW 7.3tr of the total KRW 11.3tr program. The third tranche will last from now to end-july and will amount to KRW c2.tr, with a final tranche expected after 3Q16 reporting at the end of July. Unpopular: No, with 85% Buy, but in a Korean context this is not extremely popular. Buy-side seems to have been on the sidelines until recently due to corporate governance, risk of DRAM overcapacity and low conviction in a sustainable recovery for handset division. 1Q16 results at least proved that these risks are exaggerated. Under-researched: No, not with 48 sell-side analysts but most tend to use a P/E and P/BV approach versus historic valuation, failing to capture KRW 11.4tr buyback in next year and 3-5% of FCF in dividend/buyback on average for Only 2-3 analysts have conducted a sum-of-parts and few work with updated share count taking onto consideration ongoing buyback. Undervalued: Yes. Based on a conservative sum-of-parts, we calculate a value per share of KRW 1.8m. Of this, semiconductor and handsets contributed KRW c55k each. The pref. share discount has narrowed from 22% to 18% following the buy-back announcement on 3 October. With management committed to buying back a higher relative proportion of pref. shares if discount is 1% or more, we would expect the discount to stay at this level or below. Our pref. share price target of KRW 1.6tr is based on a 1% discount to sum-of-parts or a c1% pref. share discount. 17

18 Key earnings releases and corporate news, April 216 (cont.) GPA (1.5% weight): Signs of improvement in food sales Implications for Investment Case: Not great, but some sign of recovery is appreciated. The investment thesis is that we buy a very cheap market leader in a fragmented cash generative industry, which has long-term tailwind from consolidation. This has been applied successfully in Russia through X5 Retail Group. Event summary: GPA reported 1Q15 net sales of BRL 17,754m or +3% YoY. Sales growth was diluted by 13% YoY sales decline for listed home goods operation Via Varejo. Sales for the important food retail business of BRL 9,888m rose 11% YoY while same-store-sales (SSS) grew 6%. This is a step up from 2% in 4Q15, but adjusted for calendar effect, SSS rose 3%. Also, food inflation in Brazil picked up in 1Q16 to 13% versus 11.3% in 4Q15. Management states that sales performance improved gradually during the course of the quarter, which is positive. SSS are still clearly lagging food inflation, reflecting the impact of consumer trading down, amid recession, as well as competitive pressure. Assai, the cash-and-carry format, continues to expand rapidly with a 36% YoY sales growth (up from 28% in 4Q15) to BRL 3,148m and now accounts for 32% of food retailing sales. Unpopular: Partly, with 31% Buy and 69% Hold/Sell and sell-side getting less enthusiastic (35% Buy end February, 71% end October and 81% end July). Even though stock price has come down 39% since July, the stock is becoming less popular! Target prices vary widely from BRL 35 to BRL 74 with average of BRL 5.7 versus share price of BRL Under-researched: No, not with 16 analysts covering the company but in-depth research is scarce and very few are taking a longer term view nor making a sum-of-parts analysis, while mainly focusing on short-term challenges. Analysts also fail to deconsolidate the debt of separately listed but fully consolidated Via Varejo. Undervalued: Yes, rock bottom food valuation versus EM peers and potential synergies from stronger LatAm integration. Implied EV/EBITDA for food operation (deduct stakes in Via Varejo and CNova at market value of combined BRL 22.2 per share or 47% of share price) is 3.2x for 215. This is significantly below the EM median of 1x for 215 estimates. Our 2y forward target price of BRL 1 is based on sum-of-parts with food multiple at 8x for 216e. We have not applied additional value, except for EBITDA contribution, to its 33k m2 of external rental space tied mainly to its hypermarkets, which could offer added upside in a potential transaction when the economy improves. 18

19 The largest companies in SKAGEN Kon-Tiki Samsung Electronics is one of the world's largest producers of consumer electronics, with over 155, employees. The company is global #1 in mobile phones and smartphones, the world's largest in TV and a global #1 in memory chips. Samsung also produces appliances, cameras, printers, PCs and air-conditioning units. Hyundai Motor is the world's 4th largest car maker, including their 39% stake in Kia Motor. Sold 4.9m cars in 214 and has a ca. 5% global market share. Focus on smaller/less expensive cars. Strong position in several countries and in emerging markets such as India and China. Mahindra & Mahindra is the largest manufacturer of utility vehicles in India (5% market share) and tractors (4% market share). It has several listed subsidiaries including Tech Mahindra and M&M financial services (largest financier of UVs and tractors in India). Turkey s leading and financial conglomerate in sectors including financial services, energy, cement, retail and industrials. The company has 1 companies currently listed on the Istanbul Stock Exchange and operates in 18 countries across Europe, the Middle East, Asia, North Africa and North and South America. Controlled by the Sabanci family. Hungarian pharmaceutical company established in 191 with focus on CEE. Transitioning from generic-focused to more specialised through higher margin, innovative products within its women s health division (Esmya) and nervous system treatments (Cariprazine). Significant upside potential from US marketing approval of Cariprazine and extended usage of Esmya is not reflected in the current valuation at 3-4% discount to peers. 19

20 The largest companies in SKAGEN Kon-Tiki (continued) Largest bank in India with 17% market share (ca. 25% including 5 associate banks). Also presence in life insurance, asset management and investment banking. 15, branches, 32, ATMs, 13 million customers and over 22, employees. Largest Indian overseas bank with 19 offices in 34 countries. ABB is a leader in power and automation technologies that enable utility and industrial customers to improve performance while lowering environmental impact. The group operates in around 1 countries and employs 146, people. Approximately 5% of sales stem from emerging markets and this share is rapidly increasing. South-African listed media and internet holding company incorporated in They have a strong Pay-TV business in South-Africa and Sub-Saharan African countries and a fast growing internet division focused on commerce, communities, content, communication and games. They hold a 34% stake in Chinese Tencent and 29% of Russian Mail.ru. Bharti Airtel is India s largest private integrated telecom company, and it is a leading global player (#4) with operations in 2 countries across Asia and Africa. They had around 287m customers across their operations at the end of June 214. They separated out towers into part-owned unit (passive infrastructure). Bharti family and SingTel own 3% each. X5 is a leading Russian food retailer, operating through several retail formats: discount stores under the Pyaterochka brand, supermarket chain under the Perekrestok brand, hypermarket chain under the Karusel brand and convenience stores under different brands. Modern retail is gaining share in the Russian retail market, and X5 is well positioned with their formats in the current difficult trading environment. They are also in the middle of an aggressive expansion and refurbishment period. 2

21 For mer informasjon, vennligst se: Siste Markedsrapport Informasjon om SKAGEN Kon-Tiki A på våre nettsider Historisk avkastning er ingen garanti for framtidig avkastning. Framtidig avkastning vil blant annet avhenge av markedsutviklingen, forvalters dyktighet, fondets risiko, samt kostnader ved kjøp og forvaltning. Avkastningen kan bli negativ som følge av kurstap. SKAGEN søker etter beste evne å sikre at all informasjon gitt i denne rapporten er korrekt, men tar forbehold for eventuelle feil og utelatelser. Uttalelsene i rapporten reflekterer porteføljeforvalternes syn på gitt tidspunkt, og dette synet kan bli endret uten varsel. Rapporten skal ikke forstås som et tilbud eller en anbefaling om kjøp eller salg av finansielle instrumenter. SKAGEN påtar seg intet ansvar for direkte eller indirekte tap eller utgifter som skyldes bruk eller forståelse av rapporten. Ansatte i SKAGEN AS kan være eiere av verdipapirer utstedt av selskaper som er omtalt enten i denne rapporten eller inngår i fondets portefølje.